What Passes for Monetary Policy

Glad the Prime Rib cook was a hit! It was a great cook indeed.

Randy Moss Finds a Way
I will be honest, I was pretty pissed when the New England Patriots let Randy Moss go to the Vikings for a 3rd round draft pick. I have always thought Moss is maybe the single most dangerous man in the NFL. After what happened in his stint at Minnesota I just have no idea what is going on.

Here is where things are; Moss was waived today by the Vikings after just 3 games there. The post game press conference was very strange as Moss went nuts talking about how great the Patriots are and how much he misses the team. It has never been clear what drove the breakup between Moss and the Pats, but maybe he was becoming more unhinged and they saw that. I don't know.

The major issue for Moss now is that he is looking for a contract and he wants big time receiver money, maybe 8 million a year. No one in their right mind will pay him that now, no one. Not even the Raiders or Redskins (well maybe). I have always been a fan of Moss and I can only hope he can get his head on straight before it is to late. What the heck is going on here?

Election Eve
Before I became a hard core financial junkie, I was once very into things politics. I followed everything and read tons of stuff. I remember when Instapundit was my first and last stop on the computer. I remember emailing the author on several occasions telling him the the biggest issue coming up was the housing bust (2006-2008) but only after it broke was there coverage! Anyways, what I am saying is that I used to be all gung ho about politics.

Looking to tomorrow's election you will hear that this is "the biggest election maybe ever" or until the next one or the next one. Is it big? Yes and no.

Look I want to tell you if the Republicans win big tomorrow things will change. I don't baloney my readers so I cannot write that. I want to say a whole slew of old time incumbents will get the boot, but I think the hype has been overdone on that angle.

US politics will never change as long as voters cannot correctly identify the major issues and then make sure candidates face them. Items like gun rights or unlimited abortion at 7-11's pale as issues next to the reckless spending and nasty economic issues facing this country. The last 2 years have seen the biggest frauds in financial history and never before has the taxpayer been on the hook for losses so large it makes one dizzy. The FED and the Treasury operate without law and without oversight. Theses things are issue number one, the rest is background. If one cannot be sure of their future security, what does all that other stuff really matter?

I don't want to get all political here. I will leave at I suggest you vote out anyone that voted for any bailout and anyone really in office Dem or Rep. Change as many seats as possible. Just don't expect the new guys to be much different from the old guys (or girls). At least we could scare them a little!

What Passes for Monetary Policy
Things will be flat until the elections are over and the FED makes their big splash (or splat?) on Wednesday. There were some words out today about an investigation into JP Morgan regarding their Magnetar dealings but look for a smallish settlement to occur on that. Ambac (ABK) is going bust in what was the slowest motion wreck ever (No worries MBIA rallied on the news!) but again such things matter little when free money is around. Kid Dynamite covers an important item about the Wilmington trust bank selling itself today at 1/2 off Friday's price. All the time I spent on the evils of mark to myth are covered here; when the rubber meets the road the banks are in trouble.

One other note was a Paul Krugman item that reminds me why I call him "The Krugmonster". In an opinion blog post The Krugmonster offers this dandy of an item:

The End Of Western Civilization
Gauti Eggertsson writes in to follow up on my piece on quantitative easing in the Great Depression. He points me to a 2008 paper (pdf) in which he shows that the coming of FDR, combined with America’s exit from the gold standard, was seen by markets as a huge regime change; it was, said FDR’s own budget director, “the end of Western civilization.”

This regime change immediately shifted expectations of future inflation, well before there was any actual surge in monetary base. That, rather than the quantitative easing per se, is how monetary policy — or more accurately, expectations of future monetary policy — gained some traction in the 30s liquidity trap.

Again, an important lesson — but how relevant is it to current circumstances? Bernanke, unfortunately, cannot convince people that he’s bringing the end of Western civilization.

Understand?

Clowns like The Krugmonster would prefer you panic and buy 10 tons of rice and 5 houses out of fear your money will be worthless just to support "aggregate demand" on one of his stupid equations. This kind of thinking shows how dangerous thinkers like this can be. No care is given to imbalances or whether this kind of thing is a long term solution. When I read something like this I wonder how far Bernanke will go to scare people into blowing their cash. A Yahoo Finance story has this gem:
Fed Puts Stamp of Approval on Riskier Assets
You can read the whole thing, but the ending is the best line:

Here's the key to understanding QE2's impact: Don't think of it as a stock movement. Instead, think of it as a risk movement with a seal of approval from the Federal Reserve.

Wow.

Maybe it is time to get stocked up on rice, toilet paper, and some shiny metals.

Have a good night.

Tomorrow Is September

Record high heat here in Massachusetts today! It should be hot all week until both the hurricane and a cold front move in for Friday. Latest reports show no real storm up where I am, maybe some rain. Cape Cod and Nantucket could be hit with some heavy wind and storm surge. I think it will get pushed off to sea, but I am no expert.

Tomorrow Is September
Tomorrow is September. Where did the summer go? I remember when this meant school was starting once again. While Economic Disconnect has always been a scientist at heart, he also hated having to go to school for a year to learn stuff he could have finished in 3 months.

This September should be important for things economic. The whole crew return right after the holiday weekend:
-CONgress
-Wall Street Traders
-Other folks who checked out for the summer

This can lead to price swings and more importantly this year, a Congress that really needs something to happen to change election chances in November. Note I mentioned no party as either would be in the same boat at this point and I doubt very much current policies would have been any different either.

I would say "the next big thing" (TNBT) should be known by the end of September, maybe mid October at the very latest. What is that going to be?

At this point I think most anything is on the table. A cornered animal is always very dangerous and we have two to deal with; An on the way out congressional majority and top policy makers (FED/Treasury) with out much to show for plenty of wasted money. Both could admit they were wrong and change course, but instead I imagine they will double or triple down on the giveaway plan. There never was a plan B, remember?

The best way to do something you want to is to rationalize it. Via Tim Iacono we see Paul "The Krugmonster" Krugman making bond market observations on why spending has no limits:

The bond market is telling us not to worry about the current deficits. They’re happy to lend the federal government money at very low rates. What the bond market is telling us is they’re terrified of deflation and of a weak economy for a very long time.

Now one may ask why after huge stimulus and bailouts the bond market is still scared of deflation, but that answer may preclude another stimulus so leave that aside. Krugman is not the only one making these arguments. They reach very high on up.

Clusterstock notes a backdoor way for the Treasury to drop money from the air that bypasses Congress the whole way! Great work if you can get it, running a country with no accountability. Anyways the nuts and bolts of the idea:

So the only question is: Does the Treasury have some way of spending A LOT of money without Congressional approval? Because if it does, then no Fed mechanism is necessary, and presumably the political gridlock is no longer an issue.
And in fact Treasury probably does have a mechanism, via Fannie and Freddie (at least) to take over much more of the housing market, and deliver cash to homeowners. That's what the big rumor was earlier this month in fact, that Obama would find a way to push tons of cash to homeowners via the GSEs. So far the administration is denying this, but if Geithner and Obama want this, they can pull it off, have it financed by the Fed, and no GOP opposition should be an issue.

Many writers have taken the government at their word that this will not happen. They should know better, and if it comes to pass a simple "I am shocked" will not suffice as a cop out.

A Michael Pinto interview on King World (via Zero Hedge) has plenty of heavy duty ranting on some other ways for action to happen. This includes buying even more real estate and more stocks.

Of course the problem with a goosed stock market is most regular folks, and you may be shocked to learn that "regular folks" have very little money in the market, are walking away in droves. What good is S&P 1600 when no one is on board for the wealth effect? Jobs would be better, but what can you do?

Overall I think there is going to be plenty of support for the stock market. We could argue about why that matters if it is built on a charade, but traders don't care, they just operate. With a wink and a trillion or so from the gift givers those bears in the majority (I just don't buy this BTW) may want to have fast paws as overnight headline risk will be high. How about being short big time and waking up to this CNBC headline:
Treasury to buy indices 30% higher, says short term fear should not impact economy
That would suck, yes?

I am over playing this angle but I think you get the point. Beyond all the games that are already in play, some new stupid pet tricks will be put in place. Housing and the stock markets are the major targets, but State bailouts and some others novel giveaways are not far down the line.

What remains to be seen is how well these kinds of things are going to go over with the public. So far reaction has been muted or negative. Worth a shot though!

Have a good night.

Rained Out

It has been raining pretty heavy the past two days which means two things:
-It's wet outside
-Massachusetts drivers park their cars on all the major highways

Thus I am home way late and have no time to write anything worthwile. This is good as you get to save 5 minutes of your life and I get to dig into the second half of American Apocalypse II; Refuge written by Nova of the Calculated Risk comments section fame. I read half last night and this sequel has really been excellent and I hope to finish tonight.

Rain Drops
A couple of blurbs.

-Former Minyanville regular Mr. Practical had a rare item up today that is a must read:
We're All in a Race to the Bottom
This guy is one of the very best out there.

-I did have a whole post outlined in my mind that was built on this Paul Krugman item:
Krugman or Paulson: Who You Gonna Bet On?
Krugman is happy to point out Paulson saw a recovery on the way while The Krugmonster just knew the stimulus was too puny to work. My article was to be centered around the idea that Krugmonster thought the stimulus measures were too small by a factor of 3 or 4X. If he is so right then should there not have been a structural recovery in housing, unemployment, etc only 3X smaller than he would have thought? As there has been no such thing, how does the Nobel winner explain this?

-Final item concerns robots once again. I find it funny that when I said the next bubble was to be in robots, I was all alone. Well here is another serving:
NASA Tests First Cylon
A new human like robot to assist in space walks. Just don't put him in charge of the bay doors whatever you do!

In a while when over investment in robotics blows up I fully expect to be remembered as a predictive luminary like Nostradamus and Joe Namath. Fear not, we can stash a couple of robots in all the empty houses to perform maintenance to keep the paper value of the homes inflated. Word of caution to all squatters; here is the future of empty in-home robotic security:


Have a good night.